QQQ is Starting to Drag

QQQ Keeps Returning to the Bottom of its Navy Blue Roll-Up Price Channel without having Reached the Top

QQQ Keeps Returning to the Bottom of its Navy Blue Roll-Up Price Channel without having Reached the Top

QQQ keeps tagging the bottom of its navy blue roll-up price channel without making it to the channel top. That could mean a top is forming, though we don’t know for sure until it breaks the channel bottom.

I’ve drawn a rising wedge top (orange) inside the channel with a megaphone top as part of an even more extended top just to show you how long a top here could drag out. QQQ could also put in a much faster, smaller top here, or it could zoom up to the top of the channel (or even break out upwards from it into a steeper channel) to start a new top much higher.

QQQ Long-Term Rising Megaphones

QQQ Long-Term Rising Megaphones

QQQ needs a pullback to at least the 106 area.  It has a decent chance of correcting all the way to the area of the August 2015 low. A correction to the level of the 2010 lows is possible.

We’ll know a lot more after we see how long it takes QQQ to top.

The blue rising megaphone isn’t carved into stone (no trading formation ever is).  I could be redrawing it to allow for extensions depending on how this top plays out.

QQQ Nears Its Price Channel and Rising Wedge Tops

But Do Not Short Too Soon!

QQQ is Nearing its Orange Price Channel & Blue Rising Wedge Tops

QQQ is Nearing its Orange Price Channel & Blue Rising Wedge Tops

QQQ is approaching its orange roll-up price channel top and blue rising wedge top. I drew a classic megaphone top on the chart to show a typical way this move would end (green scenario).

But you never want to short a price channel melt-up set-up until a top completes because these price channel set-ups can complete with huge vertical blow-off top moves (pink scenario).

Price Channel Melt-Up Set-Ups Often Complete with a Big Vertical Move

Although QQQ has maxed out the number of waves in its price channel melt-up set-up, it has to complete with a top and there’s no confirmation that it has even started a top.  And the top it eventually starts to form could be an extremely thin, fast-moving, vertical rising wedge that carries the price all the way to 140.

The blue rising wedge would usually break out downwards, but they do sometimes break out upwards into huge, fast moves.

How to Play It

I’m watching for QQQ’s price action at the top of the orange price channel. A pierce of that followed by a partial pullback then another breakout would mean a rising wedge top, even a blow-off top.

If QQQ returns to the orange channel bottom after reaching or piercing its top, it means it’s forming a more conventional megaphone or H&S top.

 

QQQ Price Channel is Working on a Megaphone Top

QQQ is Likely Working on a Megaphone Top for the Red Price Channel

QQQ is Likely Working on a Megaphone Top for the Red Price Channel

QQQ is working on a megaphone after confirming the red price channel. The price channel has been a move up the bottom of a rising wedge, so the megaphone is a strong favorite to eventually break out downwards.

QQQ is Working on Tops for Some Long-Term Rising Megaphones (Blue & Silver)

QQQ is Working on Tops for Some Long-Term Rising Megaphones (Blue & Silver)

QQQ is working on tops for two long-term rising megaphones (blue and silver on chart) and needs to retrace to the formation bottoms.  A fast top here (green scenario) could set up clean head and shoulders tops for both rising megaphones.

The green scenario could break QQQ out of both into a crash to the blue rising megaphone bottom (orange scenario).

The alternate green scenario is that QQQ reverses near the pink megaphone bottom to form one last larger rising megaphone after breakout from the blue one for a fast move to another new all-time high.

The purple scenario represents a slower topping process in which QQQ morphs the move off the February 2016 low into a rising megaphone top (navy blue).  The slower top would virtually guarantee a more complicated and drawn-out correction to break QQQ out of the blue rising megaphone.  This type of breakout would virtually guarantee a move to another new all-time high before the retrace to 42.

QQQ Long-Term Rising Megaphones

QQQ is Working on Topping Patterns for Two Long-Term Rising Megaphones

QQQ is Working on Topping Patterns for Two Long-Term Rising Megaphones

QQQ is working on a topping pattern for a move within a larger topping pattern within a still larger topping pattern.  It’s forming major tops for two multi-year rising megaphones on the daily/weekly charts (blue and red on chart).

All topping patterns are tricky to trade because it’s so common for them to morph into different topping patterns.  Rising wedges constantly morph into rising megaphones, head and shoulders patterns morph into megaphones, triangles morph into H&S tops and megaphone tops morph into rising megaphone tops.

There is nothing to be done about this but wait for a topping pattern to complete in such a way that a price is a favorite to get moving down on a move that’s likely to be big enough to offer a decent reward on a trade.  Until then you stay long or get long on upwards breakouts from consolidations within the patterns.

So, while QQQ could form a small quick megaphone or H&S top here that is the top before a move that takes the price back to 40 (green scenario), QQQ could also shoot up higher to complete a rising wedge or rising megaphone top before that move, and it could postpone that move by forming a larger megaphone top up here (purple or pink scenarios).